Why I Always Pick Up Pennies

March 29, 2023
Originally published NOVEMBER 30, 2021

"How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” Robert G. Allen

As you all know I am deeply committed to investing for the long term.  Yes, it would be wonderful to be able to sell at market highs and to buy at market lows. But that is not possible and has never been proven to be viable.

So let’s start with a little test to determine how much we understand about the power of compound interest or annualized rates of return. It has frequently been described as magical.  Magical does not come close to describing it.

How much do you think a penny invested in 1776 would be worth today if it had been invested for the long term?  Of course it would depend on the rate of return.  Perhaps even more important it would have required tremendous faith in the future for the original states.

Let’s say it was invested to earn 2%.  Honestly why bother?  Spend it because it will only be worth $1.23 in 243 years.

Suppose it had been invested to earn 4%.  Again we would agree it would probably have been a good decision if it had simply been spent because it would only be worth $137.75.

When we get the return up to about 6%, I would say it still doesn’t matter.  The value would be $14,103 but even that is not enough to buy a new car in 2019.

It starts to get interesting when the rate of return is 8%.  Then the penny would be worth $1,324,257.93.

But an amazing number is achieved at a 10% return.  The value would be $114,399,069.88.

Considering what I have learned about human behavior, the chance of multiple generations holding the investment for 243 years is about 0.  If the American Revolution was not enough to scare the holder into selling I am sure something else would along the way to $114,399,069.  One big event would have been the Civil War.  I think we will agree holding a penny invested in 1776 for 243 years would never have happened.  The human species is simply not “wired” to have enough faith and confidence.  Fear always seems to win.  And if not fear, spending will consume the investment long before it can grow to meaningful amounts.

The S&P index began in 1926.  The annual average return is about 10%.  The 10% hypothetical return I used in my penny example is based on almost 100 years of actual stock market returns measured by the S&P.

Jeremy Siegel wrote in "Stocks for the Long Run" that $1,000,000 invested in 1801 with dividends reinvested would have grown to $8.8 trillion by 2001.  In terms of purchasing power $1 million in 1801 would be worth about $15 million in 2001. It is safe to say most people would not have had that much money but wealthy landholders and industrialists would have.  $1 million in 1801 was the equivalent of 0.04% of total wealth in the United States.

Total wealth in the stock market does not accumulate as fast as the total return index [S&P 500] would indicate.  Then, like now, investors consume most of their dividends and capital gains.

You may or may not agree that stocks have been a wonderful place to invest.  Many are skeptical about returns going back to 1802.  There are many good reasons to be skeptical.  But keep in mind scholars who criticize the assumed rate of 10% since 1802 argue it is overstated by as much as 2%.  Let’s agree not to quibble.  Does it really matter to us if the number is 9% or 10%?  Or let’s say even 8%?

I am in the midst of writing a book about wealth and how I accumulated my personal wealth.  The publisher is Advantage/Forbes books.  It is due to be completed sometime in early 2020.  As a result I have been focusing on ways to make us aware of investment opportunities we allow to pass by.

One observation I believe is really insightful is: Look around.  Everything you see used to be money!  Now think about the penny.

It is not my intention to make us all feel like financial failures.  However it seems to be the case. We all have enough reasonable excuses.  But ask yourself how much more could you have invested?  How much less could you have consumed?  Could you have been satisfied with a slightly smaller car or a slightly smaller home?  Now consider all you consumed. How much would you say was silly consumption?  How much of what you spent that seemed to make so much sense when you bought it would now be seen by you as junk?

I will be writing more about the “penny” and how we all can achieve the magical returns that are real but seem to be hopelessly impossible to realize.  


Thomas J. Curran                                 Kevin T. Curran, CFA
Chief Executive Officer & Founder       President, CIO & Portfolio Manager

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